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DISTRICT OF COLUMBIA: An Introduction to Insurance: Policyholder

Practice Area Overview – District of Columbia: Insurance: Policyholder

By Milone Law Firm PLLC, April 30, 2021

Insurance law across the United States is heavily influenced by attorneys based in Washington, D.C., and not surprisingly, there are more insurance lawyers listed in the Chambers USA-Nationwide Insurance rankings from the nation’s capital than from anyplace else. For insurance matters of national importance, clients often hire Washington, D.C. counsel. As a practical matter, the issues affecting insurance law in Washington, D.C., and the issues affecting the nationwide landscape, are nearly identical.

The COVID-19 crisis has been the predominant topic in insurance law since March 2020, which surely will continue for the remainder of 2021. Many businesses have suffered major revenue losses, prompting an unprecedented level of claims activity under Business Income (i.e., Business Interruption) insurance coverage. The insurance industry has taken the position that Business Income policies do not cover COVID-19 related revenue losses, causing policyholders to file over two thousand lawsuits demanding coverage, and new cases are filed practically every day.

The key legal issue in COVID-19 Business Income cases is whether government-mandated closures due to coronavirus and COVID-19 qualify as “direct physical loss or damage” to insured property. Like all insurance disputes, the answer to that question turns on three things: the policy wording, which can vary from one policy to the next; the specific facts of each loss; and perhaps most importantly, controlling law. Insurance coverage is governed entirely by state law, and different states frequently interpret the same policy wording in diametrically different ways.

Through the end of April 2021, there have been approximately 300 substantive rulings in COVID-19 Business Income cases across the country, all at the trial court level. These decisions have mostly been in the context of insurers’ motions to dismiss, so policyholder wins are not final rulings, and insurer wins are often the subject of appeals. These early decisions have favored insurers roughly 80/20, but their net effect is more favorable to policyholders than the percentages might suggest. Most of the decisions granting insurers’ motions to dismiss have involved policies with a virus exclusion, or they have involved factual scenarios where no COVID-19 or coronavirus is alleged to be present on the insured property. In other words, the 20% of decisions denying insurers’ motions to dismiss provide a roadmap for successful claims. Any COVID-19 Business Income lawsuit that (a) is brought under a policy with no virus exclusion, (b) makes credible allegations of virus on the property, and (c) is filed in a jurisdiction with favorable controlling law, stands a reasonable chance of success in court, and likely would command settlement value if it advances past the motion to dismiss stage.

But the law regarding COVID-19 Business Income coverage remains in its early stages of development, and in the coming year, likely will trend better or worse than its current state. New trial court decisions come out practically every day, and in addition, many of the original decisions from the early months of the COVID-19 crisis soon will be the subject of appellate decisions. The first such appeal was argued in April 2021. There have been several requests for certification of COVID-19 Business Income disputes to the Supreme Courts of various states, and one such court, the Supreme Court of Ohio, recently accepted certification and agreed to decide whether the presence of virus constitutes “direct physical loss or damage.” By the end of 2021, there likely will be a body of appellate law that will address whether Business Income coverage is available for COVID-19 losses. If different appellate courts reach different results – a reasonable possibility – then forum selection and choice of law will become vitally important. In the meantime, many policyholders are biding their time, complying with policy deadlines, and will decide when, where, and how to pursue their claim after there is a body of appellate law providing guidance.

In addition to Business Income claims, the COVID-19 crisis has caused various litigation scenarios, frequently giving rise to novel third-party insurance issues. These scenarios include shareholders alleging that companies did not adequately manage the COVID-19 crisis; customers alleging that errors by businesses caused them damages; victims of data breaches alleging that businesses let down their guard due to COVID-19; employees alleging that they became sick because employers required them to work; residents of nursing homes and hospitals alleging wrongful death; schools and businesses accused of re-opening without adequate protections. These type of litigation scenarios – and many others – will require policyholders to seek coverage under traditional lines of liability insurance, such as General Liability, Directors & Officers, Errors & Omissions, and Cyber Liability.

In insurance renewals during the COVID-19 crisis, insurers have begun to add COVID-19 exclusions, and to tighten their policies in various ways, trying to limit their exposure. Now more than ever, policyholders should utilize their insurance counsel to review and negotiate their policies as part of the renewal process. A surprisingly high number of claim disputes arise out of a small number of provisions, and an insurance litigation attorney can spot the issues and negotiate more favorable wording of the provisions that are most likely to be in dispute.

Many of the top policyholder-side insurance lawyers are at large, multi-disciplinary law firms. These firms are positioned to handle high dollar, complex insurance claims due to their existing relationships with corporate clients; their litigation bench strength and infrastructure; plus, their ability to defend the underlying litigation and to pursue insurance recovery for the matter at the same time (i.e., one-stop shopping).

However, large firms often lack the flexible rate structures necessary to handle insurance matters cost effectively, particularly mid-sized or smaller claims. Also, the majority of large firms have relationships with insurance companies, either representing them in coverage matters, serving on defense panels, or handling unrelated work. Firms with no connection(s) of any kind to insurers often are able to advance policyholder positions most effectively and aggressively, and therefore clients often limit their search to firms that represent exclusively policyholders.

The top policyholder practices emphasize the plaintiffs-side nature of their work, utilizing lean staffing, trial readiness, contingency fee arrangements, and an overall philosophy of resolving cases efficiently. In keeping with this trend, the Washington, D.C. marketplace includes a growing number of policyholder attorneys who departed large firms and formed small boutique firms that are devoted entirely to prosecuting complex insurance claims at lower rates than large firms, or under alternative fee structures.

The business world will near the end of the COVID-19 crisis, and will continue its return to normalcy, during 2021. However, the insurance disputes arising out of COVID-19 and their impact on the insurance marketplace are certain to continue for many years to come.